What Does it Take for a Specific Prospect Theory Type Household to Engage in Risky Investment?

Jaroslava Hlouskova and Panagiotis Tsigaris
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Panagiotis Tsigaris: Department of Economics, Thompson Rivers University, Kamloops, Canada

No 286, Economics Series from Institute for Advanced Studies

Abstract: This research note examines the conditions which will induce a prospect theory type investor, whose reference level is set by ‘playing it safe’, to invest in a risky asset. The conditions indicate that this type of investor requires a large equity premium to invest in risky assets. However, once she does invest because of a large risk premium, she becomes aggressive and buys/sells till an externally imposed upper/lower bound is reached.

Keywords: Prospect theory; loss aversion; reference level; non-investment in risky assets (search for similar items in EconPapers)
JEL-codes: D1 D8 G1 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2012-05
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://irihs.ihs.ac.at/id/eprint/2131 First version, 2012 (application/pdf)

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